Live blog of ECB President Mario Draghi\’s news conference

September 5, 2013, 8:00 AM ET

European Central Bank President Mario Draghi meets the press for his monthly news conference in Frankfurt at 8:30 a.m. Eastern. Draghi is expected to strike a dovish tone in an effort to curb investor enthusiasm over signs of a long-delayed economic recovery in the euro zone. The ECB left rates unchanged earlier Thursday, but Draghi is widely expected to reiterate his bombshell July pledge to keep rates low for an \”extended period.\” MarketWatch\’s William Watts will be live-blogging the news conference here.

Mario Draghi kicks things off in about 10 minutes. While the euro-zone economy is showing sings of picking up steam, second-quarter growth of 0.3% did little to reverse the prolonged slump that proceeded it and business surveys point to only “very modest” growth in the near term, notes Jennifer McKeown, senior European economist at Capital Economics, in a note. That makes it unlikely the ECB staff will significantly upgrade growth projections for this year. And Draghi, mindful of market skepticism over the ECB’s commitment to keeping rates low for an extended peiros, is likely to strike a dovish tone and may even suggest that further rate cuts are a possiblity, she says, although he’s not likely to give into calls to tie the ECB’s commitment to low rates for an “extended period” to specific economic targets such as the unemployment rate.

Draghi uses the magic phrase, saying interest rates should remain at present or lower levels “for an extended period of time.” He acknowledges that business-confidence indicators point to a gradual improvement in economic activity, while inflation expectations remain wel anchored.

Draghi says ECB staff upgraded projection for 2013 gross domestic product for a contraction of 0.4% versus a June forecast for the economy to shrink 0.6%. The ECB staff takes a bit off the 2014 forecast, however, forecasting GDP to grow 1% versus a June projection of 1.1%.

So far, Draghi’s tone seems to be in line with expectations. He’s acknowledging signs of growth but noting that risks remain skewed to the downside. He qualifies the 0.3% quarterly rise in second-quarter GDP as parly explained by one-time factors such as weather as well as a gradual pickup in underlying activity. He sticks to ECB’s call for the recovery to pick up steam in second half of this year.

The Q and A starts. Draghi compliments reporter for asking whether there was a threshold in which the continued drying up of excess liquidity would trigger ECB action. He says recent drop is “all in all good news” because it shows fragmentation of credit markets is easing and that the ECB can’t provide a threshold that would trigger further action, such as new long-term refinancing operations. “In any event we would stand ready to take appropriate action as needed,” he says.

Draghi says an interest-rate cut was a topic for discussion. Draghi says there were diverging views, with some Governing Council members seeing the recovery as tentative while others argued conditions don’t justify a cut. Euro continues to slip, sliding to $1.3152.

What about Greece? With current rescue program due to expire at end of 2014, country’s bailout partners have time to weigh what’s needed. If program is extended, “it will require further conditionality,” he says. He’s also asked about Ireland’s path toward exiting its own bailout program. Draghi says Ireland’s program is on track but that a decision on whether some kind of bridging program will be decided at a later time.

Draghi is asked whether ECB would consider debt relief for Greece given the central bank’s vast holdings of Greek government debt. The answer: no. The ECB is forbidden under the euro treaty from engaging in “monetary financing” of euro-zone governments, he explains.

Draghi has no comment on specifics of upcoming German elections. He’s asked whether there’s been any more work on potential for releasing minutes of ECB rate deliberations. Draghi emphasizes that anything that “threatens” the independence of Governing Council members would be avoided but repeats that a proposal would be presented in the fall.

Draghi’s asked about the risks posed by the situation in Syria and whether ECB has discussed what it would do to alleviate any potential market distress that could follow U.S.-led military strikes. “We certainly are alert to geopolitical risks that might arise” from the Syria situation, while also keeping a close eye on unrelated turmoil in emerging markets. But he notes that for first time in two years, it’s domestic demand that is at root of the euro zone’s recovery. Meanwhile, the ECB “stands ready to act” whenever needed, but says there’s been no discussion of the potential for coordinated action with other major central banks.

Draghi denies there’s a need for ECB to be more explicit about its forward guidance. While the ECB has vowed to keep rates at present or lower levels for an “extended period,” unlike the Federal Reserve or the Bank of England, it hasn’t tied the guidance to a specific goal, such as unemployment. Draghi says the current form of forward guidance is best suited to the ECB’s narrow mandate, which consists solely of maintaining price stability.

It’s the last question and Draghi is asked how the ECB’s bond-buying program, the OMT, has managed to so effectively knock down borrowing costs for previously stressed countries like Italy and Spain without ever actually being implemented. Draghi says it’s a tough question to answer without “flattering oneself”, but he takes a stab at it. He says it’s all down to the tough “conditionality” that the program would impose on any country that would take part in the program.

So Draghi’s news conference is over. If the goal was to strike a more dovish tone and weaken the euro, then it looks like mission accomplished. The euro is fetching $1.3162, down around 0.3% on the day after trading near $1.3220 before the ECB chief took to the podium. Kathleen Brooks, research director at Forex.com, says Draghi bested the Bank of England, which also opted to hold rates steady on Thursday, but saw the British pound and U.K. government bond yields rise as investors appeared to question the Bank of England’s commitment to maintaining low rates.

It’s all about “effective communication,” Brooks writes, noting that the Bank of England didn’t release a statement to accompany its monetary-policy announcement earlier Thursday. That “gave the markets a green light to continue to challenge the BOE’s commitment to QE. In contrast, the ECB press conference was used by Draghi to reinforce the ECB’s dovish stance and the market is not challenging the ECB’s version of forward guidance.”

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